Chapter14discussionquestions.docVIP

CHAPTER FOURTEEN Discussion Questions What are some ways that a firm such as Wal-Mart benefits from good sourcing decisions? The bottom line is that good sourcing decisions improve profits for the firm and total supply chain surplus. The authors’ list of benefits derived from effective sourcing decisions includes: Better economies of scale can be achieved if orders within a firm are aggregated. More efficient procurement transactions can significantly reduce the overall cost of purchasing. Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. Good procurement processes can facilitate coordination with the supplier and improve forecasting and planning (lowering inventories and improving the match of supply and demand). Appropriate supplier contracts can allow for the sharing of risk, resulting in higher profits for both the supplier and the buyer. Firms can achieve a lower purchase price by increasing competition through the use of auctions. What factors lead Wal-Mart to own its trucks although many retailers outsource all their transportation? Wal-Mart is able to run its own fleet of trucks because it can ship TL throughout its supply chain. Wal-Mart’s shipment sizes are large and the company achieves aggregation across the many retail stores it owns. If Wal-Mart elected to go with a carrier, they might be able to match Wal-Mart’s costs, but Wal-Mart would cede control to the carrier. How can a supplier with a lower price end up costing the buyer more than a supplier with a higher price? Lower price can be achieved by sacrificing product quality, product reliability, and process control, which ultimately will cost the outsourcer more than the total variable cost saved. The cost of coordination is often underestimated; the outsourcer offloads relatively low-skilled labor but increases the burden on mid and upper management in controlling the production. A firm may also lose customer/